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Cost of geopolitics in MENA region
INTRODUCTION:

The much awaited geopolitical change in the entire Middle East and North African region could create a big hole in the foreign policy of many Asian and African nations who could be caught unaware. The fallout of political instability and economic downturn can further create a new spate of problems for the MENA region which is already grappled with many disturbances. The left-over of history is also contributing as an added flavor to the current situation. Yet, the visible hope is that change is more perceptible this time than any point of history. Among other problems, the MENA region is facing religious divide and sectarian divide.

ANALYSIS:

Both have negative repercussions for more than 25 countries in the region. In addition to this, the falling hydrocarbon prices can move mountains.

The Saudi Arabia-led GCC countries and Iran are at loggerhead for quite some time. On the top of it, OPEC and non-OPEC divide is adding further strain.

The hope that oil prices could climb beyond 50 USD barrel per dollar by mid-summer could be a big hype at a time when global economy is slowing down.

Already, the IMF and World Bank have warned that slowing economies will fuel public unrest and large scale migration appears to be heading in that direction.

First time, Saudi Arabia has roped in Russia to tackle the stability in maintaining global hydrocarbon pricing. Further, they are trying to rope in Iran for cutting down production so that prices can go up.

This strategy may fail beyond a point as none of them could be comfortable with each other as they have no healthy working relationship. This leads to a slide in trust factor.

Therefore, their perception will vary from each other and finally they may take steps to break the cap in oil production. The oil output cost is coming neck to neck as the demand is falling so as the selling prices.

On the top of it, history plays a big role to determine their present and future relations and how far the stability factor can drive them is beyond anybody’s guess.

But Russia which is a new entrant to MENA region may not get along with the Saudis too far as both the nations being leaders of OPEC and non-OPEC respectively have long history of disputes. In 2001, Russia went in a different direction after promising that it will adhere to an embargo on capping the production.

Yet, Moscow went ahead with an excuse that it needs more flexibility in oil output in view of its national interest. That had irked the Saudis and led to a collapse in brining stability to oscillation in selling prices. On the other hand, Iran which has rivalry with Saudi Arabia and had lot of grievances against Riyadh during its long isolation, may not fully comply with the general agreement to cap production.

Iran is yet to enter into the oil production theatre as a leading player, although it already has the potentiality. After the lifting of sanctions against Iran, Tehran does not want to miss the lost opportunity.

Thus, the only choice for Iran is either increase the production or keep it at same level. So that Saudi-led initiative does not succeed to the fullest. Now, there is a tricky line. Iran knows that Saudi Arabia is at a disadvantage.

Iran is trying to increase its political and cultural influence all across the Arabian Peninsula with a renewed vigor. This strategy of Iran may come into a friction with Saudi Arabia which is seeing Tehran’s game plan with suspicion.

Over all, the strategy to hike the oil prices may fail despite capping production limit. It has been already tested throughout the history as it only works for the convenience of select few and beyond a point can collapse.

Putting all this into analysis, it sounds that the petro dollar economies of MENA region will be badly hit in coming months. Then this will open doors to high rate of unemployment. Most economies are already suffering due to falling oil and gas prices. First time in the history of Saudi Arabia it had to borrow billions of dollars last year to meet budget deficit.

This had an impact on its foreign exchange reserve which is sliding since last year. Saudi Arabia has withdrawn tens of billions of dollars from global investment funds in an attempt to reduce its budget deficit. Yet, Saudi Arabia, which is running a $100 billion budget deficit and has used up $90 billion of its foreign assets in the past 18 months.

All this will have enormous socio-political impact. The youth in GCC could face the heat more pointedly than others as the cushy jobs are shrinking. In fact, vast energy reserves and tiny populations in Qatar and Kuwait mean they have more time to get their nationals into more productive work, but Saudi Arabia can no longer buy off its 20 million citizens with public sector welfare.

The International Monetary Fund predicts economic growth in six oil-exporting states of the Gulf Cooperation Council will slip to 2.8 percent in 2016 from 3.25 in 2014, and private sector growth has likewise fallen. Then, the slowing economy and increased military spending could fuel a fresh round of instability in the MENA region. This may remind that Arab winter could hit more badly than Arab Spring.